DRILLBITS – March 2014
This Month’s Articles
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IADC Responds to 2014 Budget Statement Regarding Bareboat Chartering
In a press release issued on 19 March, IADC Executive Vice President Taf Powell issued a statement in response to the 2014 Budget Statement on Bareboat Chartering.
“IADC and its member companies are deeply disappointed that the government has decided to proceed with measures targeting drilling rigs and accommodation vessels for additional tax. We believe this is not sustainable to our industry and will cause the UK offshore sector to shrink; overall we think the costs to the UK economy will be higher than the immediate extra tax revenues forecast by these measures.”
“The measures are directed at companies moving significant taxable profits from the UK. This fails to take into account that the share received by drilling rig owners from UK operations represents only a 6% return on current capital investment of roughly £100bn in new rigs, and that it takes upwards of 15 years to break even on their investment. Profits earned in the UK are currently subject to corporation tax, and the employment and consumption of goods and services by this sector directly benefit the UK economy.”
“The tax-raising measures invalidate existing pricing agreements between drilling contractors and HMG, and the additional costs will render some UK projects uneconomic. In addition, where the additional costs cannot be passed on to the client, rigs may be withdrawn from the UK, and new North Sea class rigs intended for the UKCS will be diverted to countries where economic returns are more predictable.”
“We find it a surprise that the government on the one hand announces a fundamental fiscal review of the UKCS whilst on the other hand makes a pre-emptive tax move targeting solely the drillers and accommodation providers that are the life blood of the UKCS. Such a move is at odds with the assertion that the government is looking to stimulate activity and growth on the UKCS,” said Mr. Powell. “Drilling rigs are inherently mobile; and drilling contractors are inherently international. Drilling companies, many of them having recently installed their headquarters in the UK, are now considering the options for their businesses due to this latest example of fiscal instability that undermines claims that the UK is open for business.”
Bareboat chartering is the international leasing system for mobile vessels such as drilling rigs, diving support ships and crane barges. The owner of the vessel is located in one location but leases its vessels to operating entities within the same corporate group, on a bareboat basis (i.e. with no crew) in many other locations, often on a temporary basis. The operator of the vessel pays a lease charge to the owner, which is discounted from revenues he earns from the client oil company for whom he drills wells. The amount of the lease is agreed in 5 yearly Advanced Pricing Agreements with government officials. This is an international system, endorsed by the UK government in 2008.
APA negotiations that have taken place for the past 40 years in the UK and other countries have led to a consensus as to how much profit should be taxed and where. All existing APA’s are rendered defunct from 1 April 2014 by these measures; notwithstanding the fact that they are the basis of contracts between rig operators and their clients.
The measures announced in the budget are as follows:
- 2.138 Oil and gas bareboat chartering – As announced at Autumn Statement 2013, the government is concerned about the use of specialised lease payments, known as bareboat charters, to move significant taxable profit outside the UK tax net, and has been holding informal discussions with industry. The government will cap the amount deductible for these intra-group lease payments by companies that provide drilling services or accommodation vessels on the UK Continental Shelf. The cap will be 7.5% of the historical cost of the asset subject to the lease, increased from the 6.5% cap previously announced at Autumn Statement. The government will also introduce a new ring fence to protect the resulting revenue. The changes will apply from 1 April 2014. The government will review the impact of the measure following its first year of operation. (Finance Bill 2014) (28) (v) (Page 75 of the report).
- On page 58 of its report Table 2.2 predicts the 5 year tax take of these measures to be £570m, with £145m coming in year one. The government expects these costs to be passed through to the oil and gas companies, therefore raising the operating costs for the UKCS as a whole.
Whilst it announced a major change to the fiscal regime the government also announced full implementation of Sir Ian Wood’s final report: “UKCS Maximising Recovery Review” and a concomitant fundamental review of the UKCS fiscal regime.
For more information, please contact Taf Powell at Taf.Powell@iadc.org.
IADC Unveils New Logo, Branding
IADC recently debuted a new logo and brand. The new look is meant to visually reflect IADC’s increased effort to catalyze improved performance for the drilling industry.
“Over the course of IADC’s 75-year history, the organization has served as the space for members of the drilling industry to connect, collaborate and create. In that time, the industry has evolved and the speed at which that change is happening is increasing,” said Stephen Colville, IADC President and CEO. “IADC recognized that to keep pace, our focus must be on developing the solutions to address members critical needs. When we looked at the tremendous amount of work our members are currently doing, it became clear that IADC’s visual identity needed an update. The changes to the logo and communications send a strong and obvious visual cue that IADC itself is different.”
The new logo is strong, yet simple and modern. It features a stylized drill bit with interconnecting segments to reflect collaboration among all elements of the drilling industry.
“It’s an exciting time to be a part of IADC. I am confident that the changes happening at IADC will have a positive impact on the industry and our members long into the future,” said Mr. Colville.
IADC Forms Drilling Engineers Committee
IADC recently formed the Drilling Engineers Committee, formerly known as the Drilling Engineers Association (DEA).
The Drilling Engineering Association was formed to advance new technology related to drilling wells, and has a long history of hosting joint industry projects sponsored by IADC members, as well as showcasing new technologies at industry forums.
“IADC has long provided administrative support to the DEA and we excited to welcome them into the fold as a full IADC committee,” said Scott Maddox, director, Drilling and Well Services Division.
For more information about the Drilling Engineers Committee, please contact Scott Maddox at Scott.Maddox@iadc.org.
New IADC Mud Pump Report Form Now Available
IADC has launched a new product specifically for mud-pump monitoring. The new form tracks total hours on the pump, as well as on individual cylinder components for each of three pump cylinders. Individual cylinder components include liner, piston, liner gasket, suction valve, discharge valve and valve seat.
“This product is another tool to assist members with their preventive maintenance programs,” said Rhett Winter, Director-Onshore Operations.
Advertising is also available on the form. Contact Bill Krull (firstname.lastname@example.org; 713-535-1521).
Pricing is $17 for members, $21 list. To order the form from the IADC Bookstore, call Jimmie Cobbin, ext 209, or visit the IADC Bookstore.
IADC Urges Action on Proposed Vessel Discharge Legislation
IADC, along with more than 50 other organizations, submitted a letter in support of vessel discharge regulation reform to Senator John D. Rockefeller IV, chairman of the committee on Commerce, Science and Transportation and Senator John Thune, ranking member on the committee. The letter urged the committee to mark up and report out S. 2094, the Vessel Incidental Discharge Act.
S. 2094 is legislation that will establish nationally uniform and environmentally sound standards for ballast water and other vessel discharges. Currently, two federal agencies, the US Coast Guard and the Environmental Protection Agency, regulate ballast water and other vessel discharges under two differing statutory authorities. Because neither federal statute preempts state action, more than two dozen states have established their own requirements for many of those same discharges, more than 150 in all. Overlapping regulations thus make compliance complicated, confusing and costly for vessel operators and mariners.
The proposed legislation would rectify the situation by establishing a uniform, science-based federal framework for the regulation of ballast water and other vessel discharges that is good for the maritime transportation industry and the industries that rely upon it.
For more information, please contact Bill Tanner at Bill.Tanner@iadc.org.
Coil Tubing Subcommittee Developing Recommended Practices, KSAs
The Coil Tubing Subcommittee is a relatively new subcommittee of the Well Servicing Committee, with members representing contractors, producers, service companies and equipment providers.
Currently, members of the subcommittee are focused on increasing coil tubing operations worldwide. The group is working to develop and revise recommended practices and sharing information that will be culled together to form Knowledge, Skill and Abilities (KSAs) competencies, among other endeavors.
For more information about participating on the Coil Tubing Subcommittee please contact Scott Maddox at email@example.com.
For the latest safety alerts, visit www.iadc.org/safety-alerts
Alert 14-07: Arm caught in pinch point on hydraulic catwalk results in deep contusion
Alert 14-08: Maintenance on accommodation’s elevator results in a fatality
Alert 14-09: High potential incident – struck by dropped object
Rigs Receive ISP Certificates
For certificates received since last LTI (in years):
New IADC Members
IADC welcomes 26 new members:
DRILLBITS Volume 24, Number 3
Jay Minmier, Chairman • Stephen Colville, President and CEO • Amy Rose, Editor
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